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Dollar hits three-week high against sterling as focus turns to Middle East and UK bonds
The British pound fell to a three-week low against a strengthening US dollar on Wednesday, as investors closely monitored the conflict in the Middle East and renewed selling pressure in the UK government bond market.
Sterling fell 0.05% to $1.3510, after touching $1.3490, its lowest level since August 14.
The US dollar climbed to a two-week high as investors turned to the currency amid growing concerns over an energy shock, while assessing diverging monetary policy paths across major economies.
The euro slipped 0.05% to 85.72 pence.
Tensions and bonds
The United States and Iran returned to a war footing on Wednesday following the heaviest exchange of fire between the two sides in weeks.
UK government bond yields also climbed to fresh 18-year highs, adding to the challenges facing Finance Minister John Healey ahead of his first budget.
Healey is due to present his first budget on October 28 and has pledged to adhere to the borrowing rules inherited from his predecessor, Rachel Reeves.
UK interest rate path remains in focus
The Bank of England’s interest rate outlook remained in the background, with the central bank widely expected to leave rates unchanged at 3.75% this month, while markets are pricing in a quarter-point rate hike by the end of the year.
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The euro fell against a basket of major currencies in European trading on Wednesday, extending losses against the US dollar for a second consecutive day and hitting a two-week low as renewed military tensions between the United States and Iran continued to support the US currency and push oil prices higher, alongside another jump in US Treasury yields.
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